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The Bush administration is encouraging U.S. firms to invest in Iraq, touting the country as an untapped market even as violence and legal uncertainty hamper reconstruction efforts there.

Commerce Secretary Donald L. Evans yesterday led a conference promoting business opportunities there and in Afghanistan, calling economic growth a key to political stability.

Separately, the World Trade Organization yesterday granted Iraq observer status, a step toward full membership in the body that sets rules for global commerce.

Observer status gives Iraq no role in WTO decision-making and does not require the country to adopt WTO rules. But it is a politically important step toward membership.

“It says to me the world economy is showing confidence in Iraq. That is the single most important meaning,” said Rend Rahim Francke, Iraq’s representative to the United States.

More than 200 U.S. firms at yesterday’s conference listened to Mrs. Francke and U.S. government officials describe the business environment and opportunities in Iraq. The country’s economy had deteriorated under Saddam Hussein’s 24-year rule, and has more recently endured war-related destruction, postwar looting and continuing violence.

Two suicide bombings Tuesday and yesterday in Baghdad killed as many as 100 people, mostly Iraqis, the Associated Press reported.

The main, and most publicized, avenue for U.S. companies to enter Iraq so far has been through U.S. government contracts. Those have mostly gone to U.S.-based multinational corporations like Houston-based energy firm Halliburton and San Francisco-based engineering giant Bechtel.

The U.S. Agency for International Development, for example, awarded Bechtel two reconstruction contracts, one worth up $680 million and a second worth up to $1.8 billion.

Bechtel and other U.S. contractors try to award subcontracts to Iraqi firms, leaving many U.S. companies unable to participate in the government awards.

Mr. Evans yesterday said companies should consider operating on the local economy, noting ventures by Purchase, N.Y.-based PepsiCo and Global Resources for Computing, a Yucaipa, Calif.-based technology firm that builds Internet-access systems.

“They are living and working completely within the local economy,” Mr. Evans said.

Company executives at the conference said they were enthusiastic about the possibilities but still realistic about the risks.

The company has an office in Iraq and is working to become more involved in the local economy, but security, transportation and cultural differences remain barriers to U.S. firms, he said.

Still, interest remains high.

“Companies have to be interested in long-term goals, not short-term sales. … We are, and we are ready to go,” said Richard Williams, president and chief executive officer at Advance, N.C.-based Williams Companies. The firm owns construction, textile and transportation outfits that would like to set up shop in Iraq, Mr. Williams said.

While U.S. officials encourage private firms, they also caution against unrealistic expectations.

One of the biggest issues remains the shape of Iraq’s government. The country is run by the U.S.-led Coalition Provisional Authority, but that Pentagon-created group is scheduled to disband after it hands over power to the Iraqi people June 30. Iraq’s still incomplete legal and regulatory system may be revised and CPA-awarded contracts may be amended or canceled, said Eleanor Lewis, chief counsel for international commerce at the Commerce Department.

“We expect but we cannot guarantee that Iraq will continue to move toward a market-oriented environment,” she added.

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